Joseph L. Shaefer is the CEO and Chief Investment Officer of Stanford Wealth Management, LLC, a Registered Investment Advisor. Retired senior executive of Charles Schwab and Co. Retired (36 years) active and reserve military service -- six in special operations, the next 30 in the intelligence... More

“Because We Can’t Afford It:” Reining in Government at All Levels 48 comments

Mar 9, 2011 2:35 PM

[New Plan: SA requests that articles have an investing theme and, preferably, recommendations -- reasonable, since this is an investing site. But some issues that affect investing don't fall neatly into that category. Like, say, how the country is being run. But doing justice to the subject requires more than just a comment. It's those kinds of articles I'll post on my Instablog going forward. Like this one...]

I didn’t think I was poor growing up because everyone around us lived in the same apartments and drove the same cars, etc.That was what it was like growing up in the enlisted areas of military bases in the 1950s.It caused me no offense when I asked my parents if we could go to Disneyland and they answered, “No, son.We can’t afford it.”This seemed then, as now, a perfectly logical rejoinder to me.So I went outside and played sports and we had a barbecue at the neighbors’ house that Sunday.Disneyland, no.Sports and BBQs, yes.I certainly didn’t feel deprived.

When I got older and we lived on the local economy, the disparity in wealth and toys was more visible.Some of the rich kids drove 1964 GTOs, some of us drove ’57 Ford Fairlanes we paid $345 for.The trade-off was, they got the shallow girls, we got to learn a lot more about mechanical stuff!I didn’t resent them for having something I didn’t; I just resolved to do well in life so if I wanted a ’64 GTO I could buy one.

We seem to have forgotten the lessons our Depression-era parents or grandparents (OK, for most readers, great-grandparents) taught us: “We can’t afford it” is an OK thing to say.There is no shame in it, particularly in a nation and culture in constant flux, where mobility is a constant and upward mobility a constant desire.

I note this because I just saw the latest USA Today Gallup Poll that found nearly 5 of every 8 Americans “opposing” the question, “Would you favor or oppose a law in your state taking away some collective bargaining rights of most public unions?”That wasn’t the shocker.Even though collective bargaining in recent years has broken down over such “job” issues as which colors are most soothing for a worker’s break area and dictating what the proper temperature will be for school classrooms, Americans still have this notion that fair play means unions should hold the power to force concessions from “management.”

Of course, unions in the private sector need and, in most cases, have that sort of “equivalency” power.They use it to ensure safe working conditions, health care coverage, and many other workplace essentials as well as, let’s face it, to grant seniority to those who have been paying union dues the longest and to get the most salary and benefits they can.All of which makes sense for them and, ultimately, for the private sector.After all, the natural check-and-balance that makes the Hegelian dialectic work in this environment is that the workers know better than to push too hard, lest the company fail and they all end up out on the streets because of their own greed.So they get as much as they can within reason.

Regrettably, the same dynamics do not apply in the public sector.“Management” – in this case the politicians whom the taxpayers elect – have had no incentive to push back against any public sector union demand.All it would do is cost them votes and create saboteurs within the system.How would it look to have “your” employees carrying signs for your opponent in the next campaign?Besides, it’s all tax (“shareholder”) money, not “management’s”, so why not just give the public sector unions what they want and keep peace in the family?

But even if public sector unions were like private sector unions, and even if it were an honest negotiation between the two parties, the American public still seems incapable of saying, “We can’t afford it.”For, as the poll went on to show, even though our government entities are broke – in many cases hard-broke – 71% of those polled oppose increasing sales taxes, income taxes or any other taxes to be able to balance the budget.53% oppose reducing pay or benefits for government workers.And 48% oppose eliminating or even reducing any state government programs, funded or unfunded.(With 47% in favor and 5% “Don’t Know.”)PS – I can understand the decision not to take part in a poll; I regularly turn them away.But once you’ve signed up for the thing, how can you “not know” whether you oppose or favor the concept of eliminating or not eliminating the annual “Pull a Weed Day” parade?

The point is, would 71% of Americans, in their personal lives, decide they can keep spending more than they make every year?Would 53% say it’s OK for management to take an outsized piece of the corporate pie even as their own real purchasing power is declining?Would 48% willingly give an extra 10 or 20 bucks to the door-to-door solicitor who pleads to keep the “Pull a Weed Day” parade going?If we can’t afford such incongruities in our everyday lives, why then are we willing to accept them in our collective and community lives?

The annual income of our federal – and most states’ – budget is twenty pounds.Their annual expenditure is as much as forty pounds.Stop the madness!!Repeat after me, “We can’t afford it.”

What to do at the individual level to correct this horrid non sequitur? Like you, I think tax rates are quite high enough, thank you, but I don’t mind paying more in taxes.So my plan is to make the smartest investments I can in the best companies I can find and raise the amount of my annual profits so I make an even larger contribution, via my taxes, to the fiscal health of my state and my country.If you and I do our part to increase the amount of money paid in taxes in this manner, we have every right to expect government to trim its spending, cut dumb programs that we can’t afford, and rein in the ridiculously high pensions and benefits some local, state or federal workers enjoy (usually heavily slanted in favor of those at the top and those who’ve stayed the longest, but I repeat myself.)

It could happen. It’s not likely, but it could happen!

Rather than discuss specific securities or sector recommendations, may I instead leave you with this “macro” investment suggestion: try to buy good value at low prices; that would be the investing corollary to the above -- “We can afford this because it represents good value.” And say, “We can’t afford it” when it doesn’t represent good value.It’s the same, whether in politics, economics, or investing.If we can’t afford it, we shouldn’t be doing it.If you would like our take on what is affordable today in the investment world, you are welcome to review our previous articles for your own due diligence…

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I believe that John Q. Public should be able to vote on what the public union workers are collectively bargaining for. Although the ratio has dramatically changed over the past few years, we still out number them.

Joseph: Yes, this is a big issue. Too bad SA won't allow your article to be published, because I believe your premise does, or will have an impact on the markets, just not in one single sector, or one single stock.

I guess, afterall, we can't invest directly in fiscal insanity. But we can assess the consequences of gross mismanagement of our tax dollars, and how the greater markets will eventually act when sane and fiscal prudence overpowers the insane fiscal imprudence.

What it comes down to as I see it is the ultimate powers of lobbying from within the public sector. Politicians stay in power, oops, office, by providing as many as possible benefits and perks to their constituents. Angers me greatly that the politicos put taking care of their careers above taking care of their country.

The diminishing numbers of private union workers is being offset by the increase in public union workers. But, that is changing.

My broker and I were talking about this very subject this morning. We both agree that fiscal austerity starts at the lowest levels of government first. The municipalities, the counties, small towns, etc. As this grows to state level, which both he and I believe will occur, it is then that the markets will become affected. When things get to the federal level, watch out. Good long term for America, bad in the short term for the markets.

Like you, I want to make all the money I can, so that I can pay more taxes and play my small role in bailing out my country. But like any American who has to pay taxes, I'm going to do everything in my power to pay as little as possible.

Hoping more stop by to comment, as this is truly a HUGE subject. Surely this thinking came into consideration by both Bill Gross and Carl Ichan with their recent manuevers.

I am tempted to make light of a very serious topic. I was very happy to hear that the Wisconsin Legislature figured out a way to sever collective bargaining even while the 14 democrats hid in another state.Everyone wants to cut someone else's piece of the pie,never his own.Now, for the levity.Joe writes:"The trade-off was, they got the shallow girls, we got to learn a lot more about mechanical stuff! I didn’t resent them for having something I didn’t; I just resolved to do well in life so if I wanted a ’64 GTO I could buy one."I suggest editing this to read <I just resolved to do well in life so if I wanted a shallow girl I could buy one.>And Maya writes:"I guess, afterall, we can't invest directly in fiscal insanity."Sure we can Maya, just buy US Treasuries!

I will end with an example that illustrates the corrupt power of collective bargaining in public unions. In our town, the teacher's union has it written into their contract that they may alter a student's grade by one entire letter for any reason, at their sole discretion. Therefore, it is possible for teachers to fail students who are actually passing their course, of for teachers to pass failures.There is nothing the administration can do, because it is contractual.So, the danger isn't always just spending, it is control.

Author’s reply »
OG, your last paragraph is a brilliant indictment of just how far into the weeds a monolith -- be it The State, the owner of a company town, or, these days more and more, public employee unions have gone / can go down a slippery slope. If they bargained to get the power to subjectively raise or lower grades, one notch is two next? Or, heck, why have grades at all -- why not let those teachers decide who passes and who fails based upon their personal likes and dislikes? Scary.

Your humor, on the other hand, was delightful! Money may not buy happiness, but it buys a lot of, um, things!

I'm an Army brat too (82nd Airborne, but postings all over the planet by the time I was 12, born at Fort Benning, then Gordon, Bragg, Japan, UK, etc.). Dad was an em. Your insta brought back a flood of memories...

Neal Boortz (talk show host here in Atlanta, Libertarian, and fellow military brat, Marines I think) has a recurring theme, which boils down to his view that putting your child in a public school amounts to child abuse. I have come, over a long period of denial, to agree with him...

Author’s reply »
Triple, what's most sad about your (and Mr. Boortz's) assessment is that many of us, you and me included, are products of public schools that actually taught something besides a false mantle of self-esteem. I remember my teachers as having an unspoken code: almost all were fair, impartial, leaders / Teachers who doubled as disciplinarians. They also had this weird bond with our parents -- when complaining the teacher was picking on you or some such, "The Teacher Is Always Right. Now shut up and do as they say!"

Joe, Loved this article. I hear the republicans have decided to cut the budget and then they come up with some pathetic number like 61 billion that they will have to negotiate downward.

We are idiots and we are being taken like we are idiots. Until we make changes in Washington this foolishness will not end. Both Dumbo and Jackass have been and will continue to spend us blind.

They just have different shopping lists!!!

The changes that are occurring at the states are because the people are a lot closer to the govt and have better control at the local level... At the local level, we can much more easily "get our fingers around their throats."... We need that with the federal govt and we need to reign in its power.

Since we gave away states rights and their power to influence Washington with the 17th amendment and we gave away citizen power when we vacated the House of Representative the Federal Govt has been on a power trip. States get kicked in the teeth, the citizens house is corrupt and is now a "House of ill repute" previously run by a madam but now run by a cry baby dandy.

We need to regain control of Washington!!!

There is only one way that I know of that we can do that.

GOOOH.com

Sorry for the rant but I am going to blame it on you since you got me started.

The simple fact is this is a moral issue. Public servant means you serve at the leisure of the public. Your first priority is the welfare of the public. If you disagree you should not be working there. Collective bargaining and unionization in the public sector erodes that basic ethic. The simple fact is public servants positions are already the safest in the economy. Do they really need even more safety at the cost of the taxpayer? The fact this issue is coming up shows that indeed we can not afford public employee unions anymore.

If the private sector can't afford pensions the public sector certainly can't and shouldn't either. The public employee unions are ignorant of economic reality.

I fought the public school wars here in Florida for a while because, dang it, the Country needs good public schools. And if all the responsible families abandon the public schools, our abandonment makes the situation worse. When I explained this to a friend - that I wanted my kids to see a cross-section of society, to know kids from other walks of life, she said "Why would you want That? Our children will go to college and work with other educated people. They will never have to know how to get along with those others." I think she was right, and I was wrong.

We started in Public schools and went through Year Round School, 3 tracks alternating 5 or 10 weeks on 5 weeks off. Try teaching first graders to read with that schedule. Then "self esteem" grading - the "honors" papers posted along the halls with huge smiley faces because the page was filled...with wrong math answers and misspelled words. I thought the papers had been posted in error, and got chewed out by the Principal for my insensitivity.

Oh, and Early Day. Because Florida teachers have to have Wednesday afternoons off to grade papers or something. I never got the hang of that, and my kids still talk about being last in the carpool line, or having to walk home, because their Mom's brain didn't process a 4 1/2 day school week.

For those years, my kids only kept up with "real" standards because I taught them myself or got tutors to fill in the gaps. It became too strong a tide to fight. They finished in parochial schools with modest tuitions, where parents were required to volunteer. The Best schools my kids attended had No supervision beyond a Principal and parent board.

And most of the good teachers hated the @#$^%$& as much as the parents. If all Federal, State, and County school adminstrations and boards were eliminated, No one would notice for a century or two. Keep the teachers. Get rid of the administrators.

Wisconsin capitol building is in lock-down. The protesters are being dragged out by the cops. They are preventing the lawmakers from assembling.Jessie Jackson is on the scene to help escalate the protests. This is not a racial statement, he is being interviewed on TV and just stated so."it's going to create a rebellion". That's his promise.

Well Said Joe! Your article fired me up so much that as I started to write a brief comment, a flow of indignation and hurt surfaced and resulted in the following rant.

------------------"We can't afford it" is about competition. I would say that the ability to be competitive is of primary importance to investors. If it’s more profitable for companies to outsource American jobs overseas where labor costs are less, what will they do? Management’s job is to maximize investment returns. That key point should be tattooed on their Asses. American companies have no loyalty to country; a company’s loyalty is to the bottom line. I happen to think that is wrong. American companies should consider the needs of their country.

Our country just spent hundreds of billions of dollars on a stimulus package. What did we get for that investment? Where is the list of cost benefits? I am not talking about vague assertion’s of all the so called jobs created... I am talking about what exactly was built or repaired? Who got that money and why did they get it? What did they build? What did they do with that money?

Why aren’t we spending billions on building fast prototyping automated factories designed to lower production costs and make the availability of cheap labor irrelevant? This is America; we should be eating their lunch, not the other way around.

So yes, I consider Joe's article as relevant to investing as it addresses a root cause of our financial decline. You can't fix a problem until its been identified. The issue of we "can't afford it" is completely entangled with our ability to compete in the worlds market.

----------------[I was going to stop at this point, but I found I could not stop the flow of my indignation about the issues that Joe's article surfaced in my mind. So here it comes... ].

----------------Joe also raises issues with respect to the enculturation of civic, moral and educational values and responsibilities in America's children. I believe by rising that issue Joe has identified a root cause behind our countries decent into both moral and monetary bankruptcy.

We are a country that has been so rich that we brought up generation after generation of self-centered individuals that have experienced few hardships. Generations whose hero’s are rock stars instead of scientists, teachers and engineers. Generations that don't understand that success is dependent on discipline, hard work and sacrifices. Generations that have not experienced hunger or thirst. Generations that are indeed not familiar with the phrase "we can't afford it."

Generations who think its someone else’s responsibility to defend the rights and privileges they enjoy. Generations that ceded the responsibilities of democracy to politicians who mostly serve as facades for two corrupt political parties. Political parties whose primary interest is on serving the needs and wants of those that provide the funds necessary to remain in power. Political parties that don't care about the needs of our country. Political parties that stay in power because Americans don't understand the historical lesson that power is always associated with corruption, and absolute power leads to total corruption. American's that don't know enough to understand the need to "watch the store".

The consequences of Americans failing to stay well informed are many. Students who passed high school but who can't read or write flood our colleges. Our jobs are being exported overseas. A good portion of America's wealth is spent buying foreign oil allowing countries like Dubai to build entirely new cities while our infrastructure decays. Why aren't we using our vast reservoirs of natural gas to supply more of our energy needs? Why aren't more of our citizens asking questions of that nature? One reason why is because vast numbers of Americans are so ignorant of the realities of the world we live in that they don't know enough to ask the questions that need to be asked.

More and more of our wealth is spent importing goods and services produced in countries with lower labor costs. Why - because businesses can't be competitive using high cost American labor. Because businesses "can't afford" paying a 35% cut to the federal government. Because Businesses "can't afford" to pay ever increasing health care benefits without raising prices which will make them uncompetitive.

Because our Government "can't afford" to pay ever-increasing sums of money on ever expanding entitlement programs without raising more revenues from a population that "can't afford" to pay more taxes.

Businesses can't decrease pay rates because labor contracts are not linked to profit or even revenue. Remember GM where labor contracts required the company to pay individuals even if there was no work for them to perform? Remember featherbedding in the railroads? Collective bargaining contracts are made under the implicit assumption that costs of benefits and high salaries are affordable in a country that does not understand the concept of 'we can't afford it'.

Exactly what is collective bargaining other than a threat to stop working, or sharply reduce productivity, if certain demands are not fulfilled? New York transit and sanitation workers routinely demand ever-increasing pay and benefit packages that are not related to the affordability of those demands. After years and years of "collective bargaining" ever increasing pay and benefit packages become unaffordable. Irrespective of the affordability of demands, if increases are not achieved, workers go on strike, paralyzing the city. At that point it’s difficult to see the difference between bargaining and outright extortion.

When I was growing up I remember a metal box filled with a set of smaller boxes, each labeled with categories such as rent, food, savings, and so on. Our spending money was earned by doing chores, no free ride. It was our responsibility to earn good grades, and if those grades were not up to par, no TV, less playtime, more time spent with my parents giving me help with my lessions. How the hell do you know what your children are doing if you don't have sit down dinners. A time for children and parents to talk to one another and share their experiences.

I had the privilege of going to a military high school (The New York Military Academy). At the academy I was taught the value of discipline. This was no easy task. But I thank God for the opportunity to learn that vital lesson. We were taught how to lead. (The Trump was under my command.). We were taught about the importance of staying informed. We were taught how to read a newspaper. We were taught about the importance of history. We were taught about how advertising works. We were taught that well functioning businesses operating in a free market environment was the economic engine that drove the success of our country. We were taught that failure was not an option. We were taught that education was vital to our success. We were taught love of country.

Now you understand the roots of my total indignation concerning the situation my country finds itself in.

Author’s reply »
So many wonderful points made, User. I'll select just one for now: "Generations that have not experienced hunger or thirst." A few years back, while still in the corporate world, we had a senior management member who was completely incompetent, stultifyingly demanding, and prone to tantrums when he didn't get his way. At the time, a fellow colleague said to me, "You know what his problem is? He's never had to wonder where his next meal was coming from." At the time, I thought it glib. After all, who hasn't had to go without a meal in the pursuit of an education or taking care of family? But more and more I realize we may be raising generations who have neither suffered nor striven. Will they, too, grow into incompetent, demanding, tantrum-throwing senior leaders?

Can we doubt that our leaders ARE "...incompetent, demanding, tantrum-throwing..."? True, they are not ALL in that alarming category, but a great many ARE. LOL, speaking as a Libertarian who often shouts "...a POX upon BOTH their houses!" at the television...

Elections have consequences. So do choices to brainwash entire generations of our youngsters.

Author’s reply »
Triple, it gives me no pleasure to have to agree with you. But, sadly, I must. Let's hope the great Pendulum in American politics will soon swing us back toward sanity and responsibility.

When my son was little, I was a divorced mom, working two (or more) jobs and taking between 9-14 credit hours at a local university.

One day he came home all excited about some school thing. They were asking for $5 to be sent into the school the next day. It was Monday night, payday was five days away and I had $5 to my name and an empty gas tank.

So, being the witch of a mom that I was, I said "no." He started to throw a fit until I sat him down and explained it to him. I even pulled out my budget and let him get a glimpse of our meager financial reality. When I told him that, no, five bucks isn't a lot of money, but it is ALL the money in world if that is all you have, he understood, calmed down and hugged me.

For years, and even occasionally now, he'll ask, "Is $5 all the money in the world?"

The reality in this country is that we can no longer afford Ponzi schemes, cronyism and being held hostage by unions.

The poll you mentioned proves one thing. Our future standard of living decrease is going to be real painful to the 70% whom think austerity and cutting won't/shouldn't effect them.

Author’s reply »
Theresa, the fact that he still asks, "Is $5 all the money in the world?" shows what an amazing, wonderful, (heartwarming), and important lesson this was. It has remained part of the "shorthand" lexicon of your family. Thank you for instilling that sense into at least one growing boy!

He's actually a "man" now (28), but thanks to the economy, I had to first lay him off, then return him to part-time, so every once in awhile, he still calls and jokingly asks it. But in the past three years he finally started heeding my lecturing and has managed to be self-sufficient.

Excellent article. But I would take it one step farther--not only can't we afford what we are doing financially, but we can't afford it morally either.

My school district currently spends $13,000 per year per student. Yet, standardized tests scores continue a long decline--it's slow but it is frighteningly steady--and most African American boys drop out by the end of 10th grade. Many of them--after 11 years of extremely expensive education--can barely read and write and are basically unemployable.

The public education lobby keeps insisting on one cure--more money. We've now run out of money (the property taxes are punishingly high)--but they insist they need still more.

The simple fact is that most public schools are not run in the interests of the students but in the interests of the teachers unions and the education establishment; most students are being hurt by it; and some are having their futures destroyed.

Several local charter schools have proven (yet again) that it is indeed possible to teach African American boys from very deprived backgrounds to read, write, compute and go far beyond that in their educational careers--and it is possible to do that on significantly less money per pupil than the public schools are getting. But the public school establishment battles every year to defund the charters since "they take money away from the public schools." (Notice--they focus on "the schools" and not "the students").

The educational establishment--the triumphant unions, smug administrators and cynically ideological "professors of education" who treat students as experimental lab rats--has not only spent all our money, but it has created an educational system that fails at its basic purpose and most particularly fails those about whom it says it cares the most. The only things it is good at are demanding more cash from the public and holding conferences at which the leaders give each other awards for their great achievements in education.

Perhaps the financial bankruptcy we are seeing will allow people to also understand the utter moral bankruptcy of our educational establishment.

Author’s reply »
Jeep, I imagine you can have financial bankruptcy without moral bankruptcy -- but moral bankruptcy is really the driving force that makes all sorts of other bankruptcies inevitable. Thanks for stating it so clearly.

Thank you for another lucid and significant piece. I heard the roar of the mob being evicted in Wisconsin (on NPR optiongirl :) ) and thought "that is the sound of the entitled when we no longer can afford entitlement." Thank you again; you are not only helping us make some money, you are helping us make some sense out of it all.

Another right wing wing nut rant from Joe. The investment banks, Fannie and Freddie, and AIG got at least 7 trillion dollars in bailout money from the Treasury and the Fed. All bad debts that any large bank once had were bought by the Fed. Go ahead and eliminate the unions, it won't make a difference, because whenever Goldman Sachs needs money the taxpayer will have to pay up. And the Joe will blame government workers and public schools for wanting too much money while never talking about Goldman Sachs or AIG bailouts. This country would have no debts if we would stop bailing out the banks every ten years. Joe, you are a fraud, just like your buddies over at Goldman sachs.

First, you are yelling at the wrong guy. Mr. Schaefer is one of those who has been attacking crony capitalism.

Second, your numbers really can't be supported. I opposed the TARP--but I have to admit that most of it has been repaid. By far the biggest bailouts went to those Congressional pets, Fannie and Freddie, and will never be repaid (more keeps getting pumped in). AIG will also likely leave a big hole.

Third, the banks (thankfully) did not export all their bad debts to the Fed--which is why they keep writing them off.

All that said, your underlying point--that crony capitalism is an outrage--is correct. But you're attacking the wrong guy.

Popejtr1, I dont think you saw Joe praising the banks. Why would you put words in his mouth. We the people are tired of being squeezed between a rock and a hard place. Between big business and big unions demanding from we the people. Its that simple. Govt has enabled both of them to take unfairly from we the people.

I started off agreeing with this post - liking the fiscal responsibility message. This argument has turned into a left vs. right ideological one. That is just wrong.

Somehow the teacher's unions in Canada (a much more socialist country) aren't crippling that country. I would argue that Canada is in much better fiscal shape than the US. That pretty much discounts the ideological fork in the road being presented.

Power corrupts - whether it is from regulators, unions, or capitalists. Corruption is ideologically agnostic.

I personally have an issue with this because at one point I weighed being a teacher against going into private industry. Starting salary in teaching at the time would have only put me barely over the poverty line, without a way to save for a retirement. The pension was the only thing that would have made teaching a financially responsible choice. I ended up going private anyway.

I feel for the teachers that went into the profession expecting a defined pension (as I would have) as part of compensation and are now being threatened with having their contracts broken. That's akin to telling post-crisis bankers they can't have their bonuses written into their contracts after bailouts.

Let's not confuse wall colors/letter grades with what's important. You are arguing a letter grade contract clause will somehow balance a budget???? Give me a break. I'll still read Joe, but the sweater is unraveling.

I liked the idea of the Tea Party - until they couldn't stand to cut Republican Party base supported funding.

Please give me a centrist, fiscally conservative alternative.

By the way, NPR funding is a drop in the bucket. Another ideological red herring. Common LEAN theory says go after the 'big rabbit' first. Why are we not considering delaying social security payments AND cutting military spending?

Well let me tell you about my experience with my very first day working as an AFL/CIO roofing union employee. Pissed me off!

Days before this, at 18 years old, I was making $1.10 an hour busting my butt as a carpenter. Wow! Luck would have it, a friend of mine hooked me up with a $7.11 per hour roofing union job. In a mere week I could earn almost what it would take me to earn in almost two months.

I loved it! Being the college-aged kid I was.

But then I lived through my first day. I wanted to prove that day that I would outwork anybody working atop the Pittsburgh church roof that was being replaced by us union workers.

The fat slob union boss, who talked at lunch break about how the "job" was ahead of schedule, told me that if I did not lean on my broom for the rest of the day, that the next day I would be doing everyone's work. Him, legs over the edge of the roof, drinking a six pack. I will never forget that unproductive asshole.

Unions have had there place. But when it comes to unions protecting the lazy assed, non-productive employees, to allow them jobs and corresponding benefits, based on years of work, rather than quality of work, rather than rewarding their own talented youth, than I'm all for blowing that union up.

You are taken an argument for fiscal responsibility (my assumption on an article titled "Because we can't afford it. Reigning in government at all levels"), and turned it into an ideological dogma since you had a traumatic experience with a union. You contributing to keeping this discussion as a simplistic jingo laden rant is exactly my point. The view I see in these posts is to exterminate unions from the public (and in many cases private) sector because they are the root of all evil.

Things are not as clear cut.

Well, let me tell you about my experience...

I have worked with unions - on the management side. In Detroit. In a Ford Assembly plant. Also in a technology assembly plant. I have seen the excesses and abuses first hand. I have been 'officially' reprimanded for picking up a screwdriver and also walking across a floor with a small box (that didn't contain donuts) in my hand. Probably others I can't remember. I have had to maneuver my way around rules I didn't agree with. It went against my upbringing which was formed in an environment of everyone doing whatever they could to get the crops off the field before it started to rain.

My issue with you, and most of the posters on this board, is painting the unions and everyone in them with a broad brush.

In a similar vein, I could make an argument, that as a carpenter, you are responsible for the overbuilding of housing in this country causing a housing crash, putting thousands of people out of work, into bankruptcy, undermining the banking system built on the premise of you not overbuilding so prices wouldn't dip and eventually causing large government bailouts that may or not (AIG) be able to pay it back. Shame on you carpenter for buying a house, fixing it up and trying to flip it. Or even fixing a roof which should have been allowed to fall in, creating less supply and supporting prices.

Or how about the stupid voters who let it all happen? Maybe we should just get rid of that system. Think of the money we'd save if we became a fascist nation.

Or the capitalist bankers and wall-streeters.

Once everyone works through their "Second Stage" of greiving, Anger, pointing the finger at everyone except themselves (in this case unions) and starts working on practical, reasoned argument let me know. I'll rejoin the discussion. Right now, there's just a lot of screaming "I'm mad as hell, and I can't take it anymore". Seems like Sen. McCarthy has been reborn in 2010/11.

By the way, if you think the unions strong armed Detroit into self destruction, you should consider reading, Malcolm Gladwell in The New Yorker:www.newyorker.com/arch...

As Rick Santelli would say, it takes two to tango, and you can't deny greed, corruption on both sides.

The only point I'd like to drive home is this:Be very, very careful of flagrantly violating contract agreements. It's a slippery slope and the subsequent lack of trust will undermine the foundation of our economy.

Slogans and jingos will not quickly rescue us from a deep hole we have dug ourselves over many years. It will take many years to recover with many mistakes along the way.

Let me just respond to your point about contracts and slippery slopes. I agree that it is best to leave contracts intact and there can be a very slippery slope when that doesn't happen.

At the same time, bankruptcy courts throw out contracts every day when a debtor lacks the funds to perform under them. It's tough on the counter party--but that is the nature of bankruptcy.

Currently, states have no way to go bankrupt (which is going to make it extremely difficult for California and Illinois, which seem to have the biggest problems). Municipalities can do so, though, and it is widely believed that a large number of California municipalities will file for bankruptcy over the next several years. They will be filing for two reasons--current employee costs and employee pensions. They simply cannot pay everything they have promised. The headlines go to the pensions of over $100,000, and those indeed consume a lot of the pension dollars, but the smaller amounts count too. Many school districts find that they have to pay pensions of maybe $500 per month for life for 55 year-old former part-time school employees who worked for the district for five or six years thirty years ago. No one gets rich off these, but there were so many such workers that the sums are large--and of course the districts failed to adequately plan for such costs.

The net result of all these contracts is that the total budgets of many California localities will soon be devoted to employee costs alone, and within a few years the present employees will be crowded out by pension/health care costs. No matter what anyone wants, obviously these pensions will have to be radically restructured because they can't be paid.

When you delve deeper into these pensions etc., many of them were entered into because there was no real bargaining and extremely limited disclosure. The municipal officials who awarded the contracts very often owed their elections to the various employee unions (indeed, were often members of those unions) and directly benefited from the pension arrangements. Few details were disclosed to the public until they suddenly discovered that their municipalities were on the hook for vast sums, and the senior employees who had "negotiated" the agreements were now retiring on mostly unfunded pensions of well over $100,000 per year.

The contracts on which such pensions were funded rest on an extremely weak moral basis and an even weaker financial one. They will be restructured because there is no choice.

Nevertheless, your warning about slippery slopes is correct and prescient. When contracts get voided, the morally pristine ones tend to get thrown out with the ethically dubious ones (indeed, the GM bankruptcy would suggest that ethically dubious and legally vulnerable contracts often take precedence during such a process).

Thus, I think we are heading precisely for that slippery slope and there is little we can do about it. A lot of municipal contracts are going to be rejected by bankruptcy judges over the next decade because the money simply isn't there.

I'm finding it difficult to find the time to write - just because of life. But because you took the time to write inciteful and thought out responses, I'll try to muster a reply.

(BTW, I'm not sure how I got to defending unions or teachers. I've been burnt by both. I'll try to get back to the point)

To give you some context in my sources, I usually just read the WSJ, some blogs, and PVR the Sunday morning shows, (Meet The Press, Wallace, Face The Nation, Washington Week). I am NEVER current on the news shows.

Here's what worries me:-We are being given an easy scapegoat for the deficit in the unions. There are NO easy answers. It will be hard work. That's my premise. Scapegoating is counter-productive in my opinion, but maybe that's why I'm not a politician. It's a complicated situation. Let's keep our eye on the prize, and not witch hunt. Witch hunts make you feel better, but don't necessarily give desired results.

Unions are not evil incarnate, and they did not cause all these issues. Anyone who says so is over simplifying the issue. (I also argue with my teacher/union friends from your side of the fence).

I think we are getting distracted from fiscal responsibility by union bashing.

-On one of the Sunday morning show a couple of weeks ago (around a table, people from all sides of the issue) - I heard that there is no correlation between big deficits and public collective bargaining. They didn't present an ANOVA table, but noone argued it. (For those casually following: For the states with coll. bargaining, there are many with and without large deficits. Same goes for the states without collective bargaining. Implicit is that collective bargaining really isn't a factor. I wish I could remember the show... Meet the Press maybe? 2 weeks ago?)

-To take the other side of the issue from you (at least in Wisconsin), I'm wary of the connection between restricting collective bargaining rights and deficit reduction. I haven't really heard a good reason why he didn't take up the union's offer to cut costs without the new legislation. To me it seems personal. Ok - fine, he doesn't like unions, his prerogative and he was elected - but we WERE talking about deficits and they WERE willing to work with him. I've heard in interviews with him (on Fox?) that he was 'frustrated' with unions in his previous political posts. I understand his frustration in trying to negotiate in that past life, dealing with various parties, etc. We all just want to get things done sometimes. However, if we focus on FISCAL issues (which is what I'm concerned about) he supposedly had a counterparty that was willing to reduce expenses.

-I'm cautious about assigning moral authority or validity to anything. That's very subjective. To be devil's advocate again, who holds the moral authority in the Ford/Visteon pension default? There are many dirty hands. And victims.

-Unions do not hold a monopoly on conflict of interest. There are too many on the corporate / government side to even discuss. My favorite is when the CEO of FedEx was on the 9/11 commission to the president to address passenger airline bailouts. FedEx also got a good chunk of it. (I bought FedEx when I heard they were on the commission, and again after the payout - so my hands are dirty too. Unfortunately, I don't know how to make money from union conflicts of interest.) If we want to get rid of conflict of interest, let's do that across the board - but not pick just one of the parties involved.

- Preemptive breaking of contracts is my fear, since Walker seems more intent on union breaking than negotiating to reduction. We've already talked about the slippery slope. I'm glad you brought up bankruptcy court. As a supplier and counterparty, the unions have a right to represent their constituents as much as Carl Icahn does (or other debt raiders). Municipality bankruptcy are especially complex (at least for me) because there are appropriation-backed obligations that have explicit, but non-binding state backing. I'm glad I'm not a bankruptcy judge. Soon we may see a bunch of widows on the news throwing Muni's (bonds) into Lake Michigan or Boston Harbor.

-How did these (pension) contracts originate? It seems like there is a moral argument, and they are all tainted with conflict of interest (much like farm subsidies). I'm going to take another view (for argument). Let's all remember the amazing boom of the 90's (and it started earlier). No-one wanted public service jobs, and you were a loser to take one (ok - that's a subjective statement but I wanted to add color). However, it is conventional wisdom that there were teachers shortages, in that era of low unemployment. The contracts were arguably written for the market. Since the market rates weren't paid to teachers, the pension concessions (beyond wall colors and work environment) were to amortize the payments into a pension plan. If the plans weren't sufficiently funded by the states, is that the union's fault? To me, this is akin to me buying a 30 year muni then at high coupon (yes that's reasonable - prime was regularly ~9%) because I didn't want to get into the yeah-yeah dot-coms. I'll take slow growth now for defined growth later. Now, as a bond holder, I'm being told that it was an immoral contract because the muni still has to pay me 10% (reasonable rate?) but kids have no teachers and there are no firemen? The muni's were happy to take my money then for the returns, as they were happy to promise pensions in a tight labor market. The states amortized the wages, and hoped they would never have to pay or that tax receipts continually went up to cover... (much like the CDO market never expected housing prices to decline)

I'm way behind in my 'real' work so I may not be quick in responding. But I'm glad you took the time to respond. I'll try to follow you so I can learn more of your view. I used to be EXTREMELY ANTI-UNION but obviously that's been tempered. I still argue against them (and yes, the conflict of interest for voting does bother me, but so do corporate/gov conflicts). If you can, please speak more about what is an immoral contract and what isn't.

Thank you for the reasoned response. I'm not sure what is happening in Wisconsin or why, so I will have to pass on that. I figure the talking heads on TV are supplying enough uninformed commentary on all sides of the issue so there is no need for me to add to it.

Let me address instead your points on unions and teachers.

I don't have much of a view on unions in the private sector. Like many on this thread, I have had a few run-ins that showed me that some of them were corrupt and mobbed up, but clearly that isn't the case with all of them. I've also noticed how often they are associated with failing industries, but I'm not sure what is cause and what is effect in those cases.

I disagree with the concept of public employee unions, though. Originally most government jobs in the US were little more than sinecures that were awarded to the winning political party. People clamored to get them because they offered good pay for little work (Tom Paine attacked a similar system in England in "The Rights of Man.") Then, civil service reform came around, politics was supposed to be removed from the equation and sinecures were supposed to be turned into jobs at which people worked hard.

Public employee unionization, though, brings us back to the old days, albeit in a somewhat different way. The public unions provide massive support to favorite candidates (in my state they "own" politicians of both parties, who are often officials of the public employee unions) and the politicians then vote to give them tenure and a variety of benefits.

The studies may be ambiguous on whether local and state employees are overpaid, but where I live there is little question. Taking the teachers for example, we have a lot of direct comparisons. Teachers in our public schools make approximately 40-50% more than their colleagues who teach in local private schools--and that does not include pension and retirement health benefits.

My kids attended both private and public schools at various points of their educational careers and I saw little difference in teacher quality. There were a few really excellent teachers in both types of schools, and both had a majority of less-gifted but still adequate teachers. Both had some inadequate teachers--but only the public schools had teachers who shouldn't be allowed in a school building. There were only a few of those, but they were protected by tenure and the kids who were "taught" by them were simply out of luck.

As an interesting sidenote, several of the best private school teachers I met had previously taught in the public schools, but left to take a much lower salary in a private school because they were allowed to teach without the overhanging weight of the bureaucracy micromanaging their classrooms.

Anyway, I think that the situation where I live shows that the public school teachers, at least, get above-market salaries and benefits. Frankly, I wouldn't worry too much about that except that (1) we are running out of money and (2) as I noted in a comment above the teachers' unions continually try to sabotage the local charter schools, including the ones that actually educate African American boys--something that our public schools seem unable to do.

Getting back to public unions, I think that they are extremely problematic in theory and have proven to be a problem in practice. Moreover, even if I'm wrong on that, we can't be in a position where we need to spend all of our state and local government revenues on personnel costs. The wheels fall off the bike when we get anywhere near that point, and all over the US we are heading there now. We need to move public employees away from defined benefit pensions and into defined contribution plans, cut the number of employees, and make sure that their compensation is rational.

We also need to cut the corporate welfare (and farm subsidies etc--you name it and most people on this thread will be in favor of cutting it) but most of that is on the federal level. In states and municipalities compensation costs have become the biggest single problem. It won't be easy on the employees, but as Mr. Schaefer says--we can't afford it.

By the way, good luck on the muni bonds. I've been avoiding them because I figure in a bankruptcy bondholders will have to take a haircut also. I'd really avoid California and Illinois issues because the bankruptcy lawyers are already talking to municipalities in both states. My guess is that some local governments on Long Island might not be far behind.

Privatize, that is the answer. Why do little private schools exist that perform better and have no problem finding qualified teachers to accept positions? The rest of that argument is specious.As for the teacher's pension being the only "come on", when did you apply, in 1942?My m-i-l was a teacher, and she'd be over a hundred today. The conditions you describe existed in her day, not ours. It's been a long time since teachers were underpaid. Let 's not forget they work a part-time job. Let's see how many thumbs down and screams like a stuck pig that comment garners.

Traumatized? Ha! How about extremely frustrated. It gets worse. On my last day, my 11th, working for the AFL/CIO roofing union, I was working at a chemical plant north of Pittsburgh. The "Job" for me that day was to tie a rope around a 140Lb cement slabs and by mere rope and pulley, yank those slabs up about 40 feet.

The person helping me was a high school heavy weight boxer. At the union hall in the morning, the job foreman was asked, "Shouldn't we be taking a gas powered wench?" The foreman looked at me and the boxer, laughed and said, "These two are your wenches."

After about 7 slabs, we were both plum tuckered out. The next slab my arms gave out and up shot the boxer into the air, hanging on for dear life, because if he let go, the heavy slab was going to come right down on top of us. That he weighed more than the slab, may have save both his and my life.

It gets worse. The job foreman was responsible for monitoring the pitch buggy. It caught fire. The only way to put it out was to walk up close and toss a Dixie cup of water into the raging fire; the water would then blow up, extinguishing the fire. The foreman wanted me to do it. Insisted I do it, because I was lowest on the totem pole. I quit right there on the spot, went over to a railroad track and sat down. He eventually did take a cup of water to the burning pitch, and was briefly engulfed in flames. Eyebrows singed, hair burned some. A great story to talk about with the boys back at the shop!

Then we go later in life and onto when I was building restaurants. My first, I handed out t-shirts to all the union employees, which by the way, being forced to use a union cost me about 25% more to build that restaurant.

The day came when the equipment arrived, ice maker, grills, refrigerators, etc. I was on the truck, helping them move the equipment, making sure each was placed and installed correctly. When it came time to plug it in, there had to be three union workers present, just to plug the refrigerator in; an electrician, a carpenter, and a plumber. Just to plug the dang thing in!

I objected, and soon enough, a mountain-sized man approached me, threatening me, and told me I was not allowed in my own restaurant, which I was paying him a premium to build! Not even allowed in my own demised premises.

Surely unions had their place in time. There was a time in this country when sweat shops needed unions from abusive and corrupt corporations.

But times have changed. I'm not against in total private unions. But I am against public unions. They inherently create inefficiencies. As my comment at the top of this thread states, I believe I should have the right to vote on what public unions are collectively bargaining for.

@Everyone: I think you confuse me with a union supporter. I'm not pro-union or anti-union. I'm anti-jingo, pro-argument. "Privatize is the answer" doesn't cut it. (Sometimes privatization works, sometimes it doesn't - look how well privatizing bond ratings that were used in regulatory frameworks for credit quality worked.). I'm against knee-jerk reactions.

@Jeep: Thank you for your kind, and thoughtful response. I think you and I agree. Not only in the substance of the argument but in the form. You, however, outdid me by remaining civil while I admit I got cynical and condescending.

From my unscientific survey of the discussions, it seems like neither social sec. or defense cuts are being embraced by the majority. Instead, politically convenient causes are paraded.

My point regarding those was that, in private enterprise, LEAN/TQM/Six Sigma theory tends to go after the items that make the largest impact first. That's being efficient. Following my own advice though, I need to give you credit and follow your thought train.

My approach was to use a business approach to government budgets. However, government is not private by definition (how much should it be? that's the debate). It stands in the court of public opinion, and that is why your suggestion has so much merit.

Here's what I like about it. It is easier to drive the thin edge of the wedge of fiscal reform into public opinion using small budget, easily supported initiatives. Hopefully momentum from that will be enough to enable tackling the issues that will produce bigger results. If that's your point (or part of it), I agree it has merit. It would be nice to have the parties show their own self-sacrifice. Democrats could call for reducing public broadcasting funding and Republicans could call from ending tax breaks to religious organizations.

@optionsgirl:Apart from being possibly biased in your 1 data point assessment based on your mother-in-law, I can't really argue with your post. Just because you gave nothing to argue against. Let's have a look at 2 studies:epi.3cdn.net/8808ae41b...shows that public employees are underpaid by about 5%www.unionfacts.com/dow...shows they are overpaid by about 5%Neither is enough of a difference for me to scream like a stuck pig.

Slamming unions for a possible 5% disparity in pay seems like a red herring.

Privatization can be good. I would seriously consider privatizing municipal garbage pickup, road maintenance, etc. I would seriously consider removing privatization in the form of Xe/Blackwater from the military.

I agree with Maya, and have been burnt (not literally like he's seen) by unions. But there is more to this than "Unions are bad". Like anything, they are and they aren't. Everything is inefficient, it's not a perfect world. Try using Microsoft software - capitalism at its worst :) Let's bring some color into this world of black and white.

"According to the most recent Employer Costs for Employee Compensation survey from the U.S. Bureau of Labor Statistics, as of December 2009, state and local government employees earned total compensation of $39.60 an hour, compared to $27.42 an hour for private industry workers-a difference of over 44 percent. This includes 35 percent higher wages and nearly 69 percent greater benefits."

I wonder how productivity stacks up. I bet not only do they get paid more but performance lags as well. And as you know, unfunded pensions are the real killer, not just the overcompensated salary and the sense of entitlement and superiority they have over the private sector.

In most of Asia the police and civil servants are much more willing to help than in the US. And they are lower paid than the private sector. We should learn from them.

Even though you provided a single article from an admittedly biased source, I enjoyed it and agree with a lot of it. However, I find some of the article subjective - but it is (effectively) an editorial and that is its purpose.

Where you lost my respect was quoting the inflammatory 2nd paragraph that is later rebuked in that same article as not being normalized. He goes on to say that one of the reports I quoted is not normalized enough. I hope someone does a study to quantify his claims (though assessing a value on public sector job security is tough, tougher in Wisconsin). He's picked the low subjective low apples (and low turnover rates can be countered by a bunch of studies from Ingersoll). But, they are valid points that should be factored.

If you would have quoted the conclusion of that article, we could have had a discussion. As it is, I can see you are a troll.

Author’s reply »
The QCs, Concentrators and my own poor-by-comparison effort here all share one thing in common: A respect for others' viewpoints and a genuine desire to add to our understanding. I have debated with and sometimes disagreed with many of the commenters here, have learned from them, and remain open-minded to serious discussion and new facts. As long as we disagree honestly and RESPECTFULLY, all are welcome here.

Here is another example of the insanity of government intervention. The system is rigged.The DOJ is not saying to throw out the test, they are saying a minority candidate with a grade of F is welcome to the police force.Here we have paternalists at work:abc.daytonsnewssource....

Brilliant article Joseph! I agree that fiscal responsibility should be at the center of our goals and objectives as a nation. Your most poignant commentary dealt with the issue of raising taxes. Politicians love to talk about all the different things that can be done and aren't being done, yet very few address the elephant in the room. Reason being it usually has the same effect as attempting to curb the power of unions- loss of votes. While I'm on the subject of pachyderms rest assured there are no white elephants in our budget. Our government must be Aron Rolstanesque and will have to cut an arm off to save our country's life.

I also think that America's problem goes beyond government fiscal responsibility. There is a fundamental problem with the general consumer business model, which seeks to induce spending from consumers without regard to their financial standing. Look at consumer credit. Here's an industry whose business model before the most recent financial crisis was built on extracting fees from the most fiscally irresponsible consumers(it has been restructured post-financial crisis). The housing crisis has its roots in sub-prime mortgage customers, again people that have a history of poor financial management. Every retail shop and grocery chain across America has adds which persuade the consumer to buy more than they need and receive a discount on the per unit price, yet ultimately the underlying problem is they are walking away with MORE than they need. Through a bombardment of advertisements on all levels excess has become an integrated part of Americana. Just as Nancy Reagan's "Just Say No." campaign was a painfully inadequate solution in addressing America's war on drugs, simply saying American's should spend less and save more oversimplifies the issue. It will be a heady task to change this cultural problem, but the financial crisis went a long way to addressing it. When a man loses his house and his job he gains a new appreciation of true subsistent living.

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